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What Does the Fibonacci Retracement Mean?

If you are researching about fibonacci retracement, you’re getting into some pretty advanced areas and theories of investing. Good for you! Advanced investing tactics are one of the many things that distinguish real pro investors from regular investors. (Not that there is any problem with such investors).

Fibonacci Retracement Defined

So what is a fibonacci retracement anyways? Data driven investors have noticed that many stocks and investment vehicles have a sort of “floor”. This means that stock and asset prices rarely fall below this certain floor. Often when they do, prices began to rise as investors snatch up stocks at the perceived low price. This is the so-called fibonacci retracement. The fibonacci retracement levels represent a point when investors feel that the stock is undervalued, especially when compared to the company’s long-term prospects.

For example, some people argue that Apple’s fibonacci retracement level is $95 dollars. They believe that when stocks drop below this mark, prices will inevitably rise. At least over the past few months this does seem to be true. The few times AAPL has dropped below this price, prices quickly recovered.

These retracements primarily rely on past data to find out where prices started to stick and demand for stocks started to rise. By looking at a large pool of data, the investors designing the algorithms that run the fibonacci retracements are able to discover patterns. These patterns could possibly correlate to levels at which stock prices won’t fall under except under rather extreme circumstances.

How to Use Fibonacci Retracement

As you have probably guessed, figuring out and using fibonacci retracements is easier said than done. The first challenge is actually figuring out where such levels might be at. As you can guess, there is a lot of math, data, and other insights that go into figuring these statements out. Luckily, you can use a fibonacci retracement calculator to help you determine where the actual levels might be at. A fibonacci calculator basically automates the hard work of developing and using a theorem to actually calculate levels.

Using this calculator, you can then watch a variety of stock prices and wait for prices to fall near or below the fibonacci levels. If your insights turn out to be correct, then prices should bottom out. Then they start to rise as people rush in to pick up the stocks on the cheap. This means you will be able to buy stocks at a price near where they bottom out then ride the upswell. And how does investing work? Buy low, sell high. So if you believe that stock prices have bottomed out, that’s a great time to invest.

The Limits of Fibonacci Retracements

There are certain limits when it comes tofibonacci retracements. As an investor it is vital for you to be aware of these. Prices will almost always reflect the true value of the stock, at least over time. Yes, it is possible that in the short run stock prices will drop below or surge above the actual value of the stock. However, a market correction will occur and prices will be restored to their proper level.

No, fibonacci retracements do not constitute an unbreakable wall. They are more of general guidelines and can be used to show you what the overall investor sentiments are. Yet, prices can and will drop below the floor set by thefibonacci calculators. For example, let’s say that you use a calculator and determine that Apple’s floor is set at $95 dollars and buy stocks. While it may be possible that under normal conditions this floor will hold up, extreme conditions can always break these general rules.

What if Apple announces a scandal? What if the company loses a major lawsuit, or if it turns out that some of the company’s products are hurting people and the company is liable? If this were to occur, Apple share prices would most likely plummet, falling below the level set. So no matter how accuratefibonacci retracements are, you need to remember that they are more like general guidelines than strict rules.

Fibonacci Calculators and Overall Market Pulse

For this reason we also recommend that you don’t become too overly reliant onfibonacci calculators, even if they have brought you success in the past. It is also important to keep track of the overall pulse of markets. Keeping an eye on the news, reading analysis reports, and looking at the big picture is essential. Data crunching tools are useful, but markets are ultimately at the whims of the larger economy. With markets so turbulent these days, it is essential for investors to keep an eye on the global economy as a whole.

Combining these tools and a general understanding of the market, however, can lead to a lot of success. Using powerful data analytics tools for investing can help you dig deeper into important issues.Fibonacci retracements and other tools should definitely be a part of your tool set! Make sure you check these tools out and use them to make more informed investment decisions. By doing so you will increase your chances of success and produce ever greater results.